The Internal Revenue Service scored an initial victory against a union that challenged the agency’s plan to end bonuses in 2013 for bargaining unit employees, but the union has pledged to continue its fight.

The bonus cancellation -- which would save the IRS $70 million -- was upheld by a third-party mediator. Danny Werfel, the principal deputy commissioner at IRS and the agency’s effective chief, said when announcing the plan it would allow the agency to cancel two furlough days it had scheduled for July 22 and Aug. 30. To date, IRS employees have taken three days of unpaid leave, instead of the originally anticipated five.

The National Treasury Employees Union, which represents IRS workers, has argued the agency is obligated by a collective bargaining agreement to pay the bonuses, which would reward employees for work conducted in 2012. The third-party mediator did not issue a ruling on IRS’ legal obligation to award bonuses, NTEU President Colleen M. Kelley said.

“NTEU believes frontline employees earned these awards and the IRS should pay them,” Kelley said. “NTEU rejects IRS management’s argument that the IRS cannot pay awards due to budget cuts. The IRS makes funding decisions based on its priorities every day, such as paying contractors rather than its own employees. IRS leadership had the opportunity to make frontline employees a priority and chose not to.”

NTEU has filed a national grievance with the IRS to require the bonuses, and said an arbitrator will resolve the issue in the spring. The Federal Services Impasses Panel will also rule on the issue, but it will not impact the current dispute. Instead, FSIP -- which resolves impasses between federal agencies and unions -- will address “the impact and implementation” of the IRS’ decision to stop paying awards in the future.

The IRS previously decided not to award bonuses for non-union employees, per White House guidance. Werfel is also looking into the possibility of ending bonuses for employees in the Senior Executive Service, whose annual earnings are based in part on a pay-for-performance system.

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